As we’ve pointed out before, both these cities are a collection of hundreds of individual markets, so there will always be areas within both cities that continue to grow. For instance, the south west of Sydney around Campbelltown remains a solid growth area as do parts of the west and northern beaches. Similarly with Melbourne, outer suburbs like Box Hill South and Fitzroy are experiencing high growth rates while suburbs like Melbourne’s Melton and Melton South are enjoying excellent rental yields of 5% growth over the past year.

So both cities will always have windows of opportunity.

But if you’re a first time investor looking to get into an affordable market with high returns over a long term period maybe you should look outside both capital cities toward some of the regions.

There are a few rules of thumb and caveats to consider. Research of any area is vital. You want to buy into an area that can deliver at least ten years of solid growth. Also watch out for property bubbles that are fleeting. This is especially true of areas that are in the thrall of tourism or those overly reliant on holiday income. The South Coast of NSW experienced a massive spike in the early 2000s as did the Blue Mountains. However, neither managed to sustain the short lived boom and are now described as having “time warp” prices. Simply, they are not areas that anyone needs to live in though they may eventually catch up to the urban spread of Sydney.

So what makes a regional centre attractive in the long term? It’s generally a few consistent factors:

Firstly, proximity to the capital city is always useful, especially if it’s in a commutable distance.

Secondly, if the regional centre has enough major facilities in place that allows it to be a self-sustaining hub. For example, if it has its own hospital, its own university or its own airport (these are all three things the Blue Mountains lacks), these will all stimulate long-term growth and create jobs and drive property prices.

Thirdly, plans to upgrade and increase existing infrastructure is important. Plans to bring in a new hospital or a fast train or job creation centres such as a defense base, a jail or a new commercial development (ie. a shopping mall) will instantly add value to the region. Some towns and centres will grow at a faster rate than the local council can manage. So while population growth is certainly a factor, if the infrastructure is not in place, then a boom could be short lived.

Fourthly, the long-term rental yield needs to be solid and consistently growing. Again, here’s where careful research comes into play. It’s easy to get tricked by some holiday areas, especially those on the coast. They can have boom times in the holiday periods and have high spikes but then lie dormant for the rest of the year. Sustained population growth and demographics are certainly a factor. However, make sure you read the data correctly as population growth doesn’t always correlate to increased rental yield. You also need to look at rental yield versus capital growth and weigh up the associated costs to arrive at a clinical decision.

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Here are a few regional centers and areas that (at the time of writing) are solid long term bets:

Newcastle: Newcastle ticks many boxes. It’s just barely commutable to Sydney if you squint your eyes and suffer the pain of a daily ninety-minute drive. However it’s a strong hub in its own right. With a major hospital, an airport and a university, highly rated schools and recent infrastructure upgrades its swiftly becoming a nexus for property investors who can’t afford Sydney. It also has beaches and is becoming very cosmopolitan. The numbers speak for themselves. It currently has an annual growth rate of 9% and rental yields have an annual increase of around 2%.

Wollongong: For years a poor cousin of Sydney, Wollongong was a bit of an economic basket case once it lost its manufacturing industry. However, it has since rebuilt itself as an IT and research centre. It’s attractive for its rainforest, beautiful beaches, a university and is very commutable to Sydney with a train line going direct to the Eastern suburbs and the city and airport. It has an annual growth of around 8% and a rental yield of around 3%. It’s in high demand by renters.

Bendigo: The former gold town in regional Victoria has seen dramatic growth in housing price and population. It’s partly been built on major infrastructure developments such as a major hospital, a Bunnings megastore and expanded shopping centre. It has a strong manufacturing base but also boasts major financial services, notably the Bendigo Bank. It has an annual housing price growth of around 6% and a rental yield of around 4%.

Geelong: Geelong has become a magnet for young families looking for affordable housing. It’s proximity to the coast and the Great Ocean Road tourism has made it very alluring. It’s a mix of manufacturing, retail and health services. In terms of population it is rapidly growing. Already the 12th largest city in Australia it’s been the nation’s second most successful regional property market in the last five years (beaten only by the Illawarra in NSW). Geelong’s annual housing price growth is around 5% and rental yields growing by around 3%.

It’s worth remembering that any of these four areas could all be not as attractive as a property investment in the future and that this is really a snapshot in time. Instead look at the factors that make them affordable and excellent property investment targets: desirable environment and good livability; major infrastructure; long term rental yields and that they have strong local economies to keep the population buoyant. It’s applying this sort of formula, backed by research, that will help the canny investor find the right property bounty.